OREANDA-NEWS. December 20, 2007. Chelyabinsk Zinc Plant  (LSE: CHZN, RTS: CHZN), Russia’s largest producer of zinc and zinc today announced its results for the nine months ended September 30, 2007.

In January-September 2007 Chelyabinsk Zinc Plant (CZP) produced 122,676 tonnes of zinc, 11% more than for the same period of 2006 (110,178 tonnes). CZP sales for the nine months of 2007 totaled 109,494 tonnes, an increase of 10% compared with the corresponding period last  year  (99,953  tonnes).  CZP’s  domestic  sales  accounted  for  48%  of  the  total  sales  or 52,451  tonnes, export sales  totaled 57,043  tonnes or 52% of CZP’s  total sales  for  the nine months ended September 30, 2007 (9M 2006: domestic sales – 60,325 tonnes, export sales – 39,628 tonnes of zinc and zinc based alloys). Since  the  beginning  of  the  year  all  zinc  concentrate  produced  by  CZP’s  subsidiary,  Nova Zinc, operator  of  Akzhal mine  in  Kazakhstan,  has  been  supplied  to  the  Chelyabinsk  Zinc Plant. For  the nine months of 2007 Akzhal’s supply  to CZP  totaled 23.6  thousand tonnes of zinc  in zinc concentrate, production of  lead  in  lead concentrate by Akzhal mine  totaled 3,9 thousands tonnes for the same period of 2007. 

CZP's revenues increased by 18% to $450 million in the nine months of 2007 as compared to the same period of 2006 (9M 2006: $382 million). The main  reasons  for  this  increase were increase  in LME zinc  prices  (LME  zinc  average  price:  9M  2006  -  $2,965.5  per  tonne,  9M 2007 - $3,451.7 per tonne) and growth in volume of zinc sales. Revenue for the nine months of 2007 also includes $12.3 million (or 3% of the total revenues) generated from sales of lead concentrate  by  Nova  Zinc  (9M  2006  -  $5.1  million)  and  $23.1 million  (or  5%  of  the  total revenues)  received  from  the  sales of  by-products  which  include  primarily  sulphuric  acid, cadmium and indium ($16.8 million in the nine months of 2006). 

CZP's gross profit for the nine months of 2007 decreased by 20% to $123 million compared to  $146 million  for  the  same  period  of  the  previous  year. Gross profit margin  for  the  nine months  was  27%  (9M  2006 Gross  profit margin  –  38%),  EBITDA margin  decreased  from 33%  to  28%. This was  caused  by  an  increase  in  costs  and  change  in  the  sales  structure (domestic vs export sales).

Cost of sales increased by $91 million to $327 million (9M 2006 – $236 million), primarily as a result of an increase in costs of materials and consumables used due to the higher prices for zinc concentrate and an increase in costs of repairs and maintenance. 
Increase in repairs and maintenance costs was mainly attributed to the deferred repairs and maintenance  expenses  incurred  in  2003  -  1H  2006,  as  a  results  of  unfavorable  LME  zinc prices.

Starting  from July 2006 Nova Zinc increased stripping operations (i.e. overburden and other waste  removal)  in  order  to  reduce  the  lag  in  stripping.  This  increase  also  impacted consolidated amount of cost of sales. Distribution  costs  for  the  nine  months  of  2007  totaled  $11  million,  an  increase  of  92% compared to the same period of 2006 due to an increase in export sales volume. Net Income for the nine months ended September 30, 2007 totaled $69 million compared to $79 million for the same period of the year 2006.